Commercial Mortgage Broker Proposal

[Christopher Roberts]

Hello, looking for insights on a proposal received from a commercial mortgage broker. The loan is for a multi-family apartment building. The proposal I received has the following facts:

• Total fee is between 2.1% and 2.5% depending on how much time the mortgage broker has to spend getting the deal done.
• Fee is due in phases before closing (1st at proposal acceptance, 2nd at issuance of lender commitment, 3rd schedule loan closing).
• These fees are in addition to any fees charge by the lender, which will be provided after I accept this proposal.

In reviewing this proposal, the variability in the rate charged and the fact that the fee is due before loan is closed gave me some paused. In addition, if they place this loan with a lender that charges 1-3%, I could be as high as 5% in loan fees. As some additional background, I will be putting 20%-25% down, excellent credit score, and this is my 2nd commercial property deal. Any feedback would be greatly appreciated!

[Joel Owens]

My capital markets mortgage brokers do NOT get a fee until closing. 

A mortgage broker getting paid most of the fee in stages wreaks of a fee taker trying to maximize money out before the loan actually ever closes. I am talking in generalities and not this specific offer which I know nothing about. It could be telling that the mortgage broker is taking fees in stages as they might know the lender re-trades mid deal when the buyer is deep in costs and legal fees or they might not fund the deal AT ALL.

When I do a commercial real estate transaction as a principal real estate buyers broker I get paid at CLOSING. This forces me to create systems and processes to help weed out the real buyers and sellers from the time wasters. It also helps provide a better service to the REAL buyers and sellers out there trying to do an honest deal with integrity.

Generally 2 to 2.5% fee for a mortgage broker would be a RED FLAG. I have friends that close 1 billion a year in loans in the capital markets space. The fee most of the time is 1% of the loan amount paid at closing. The exception is some have minimums such as 1% or 10,000. So for example if loan was 500,000 and 1% was 5,000 their minimum is 10,000 so would be 2% in that case.  Most capital markets do not touch anything under 1 million loan and most times 2 million minimum.

If loan is in the tens of millions or more then I have seen loan brokers charge .5 to .75 percent instead of 1%.  Also be careful of the loan broker asking that lender deposits go to them or the unknown lender. Instead look at having your attorney hold your depsoit funds into escrow and release and pay for each report after verifying costs. With my clients on commercial retail they send in lender deposits but the lender is well known and capital markets contact has closed over 100 million of loans with them and know they do not re-trade.

Now there are times when it is not a lenders fault such as seller gives you fraudulent information and cash flow income of the property is not what is stated. Now lender either can't do the loan or has to assess more risk to the deal and change terms. We have in our non-binding LOI's that day 1 of due diligence in purchase and sale phase will not start until all documents are received. This helps keep seller honest from hiding problems with a property and giving last minute docs that change the whole deal 3 days before DD ends and you have already spent tens of thousands in attorney fees and lender reports. Also in non-binding LOI we have confidentiality component where we try to see big key DD items upfront to make sure nothing would majorly affect loan or cash flow of the property before spending maybe thousands negotiating a contract for purchase.

Nothing is  fool proof but measures can be put in place to try and limit losses and get rid of loser properties right away.

No legal advice given.